Home-Based Office Mileage: What's Deductible?

If you're working from home and want to know what mileage is deductible, there are a few things to consider. Firstly, the IRS has strict rules about what constitutes a commute, and transportation from your home to your main or regular place of work is generally considered a personal drive, which is non-deductible. However, there are two exceptions to this rule: the home office loophole and temporary work locations.

If your home office is your principal place of business, you may deduct the cost of trips made to another business location. To qualify, your home office must be where you perform most of your administrative tasks, hold regular client meetings, or earn most of your income.

The second exception is when travelling between your home and a temporary work location, defined as any place where you expect to work for less than a year. If you have a regular work location, you can deduct the cost of commuting to a temporary site, whether it's inside or outside your metropolitan area. If you don't have a regular work location, you can only deduct commuting costs to temporary sites outside your metropolitan area.

It's also important to note that there are two methods for claiming tax deductions on car expenses: the actual expenses method and the standard mileage rate method. The former allows you to claim deductions for all expenses related to operating your car, while the latter offers a set rate per mile driven for business purposes.

So, if your home office is your principal place of business or you're travelling to a temporary work location, you may be able to deduct the mileage from your home to work. Be sure to review your local regulations, as these may impact your eligibility for mileage deductions.

Home office as a principal place of business

To qualify for home office deductions, two conditions must be met. Firstly, your home office must be either a place to meet or deal with patients, clients, or customers in the normal course of your trade or business, your principal place of business, or a separate structure that is not attached to your residence and is used in connection with your business. Secondly, you must use your home office regularly and exclusively for business purposes. This means that your home office may not be used for any other purpose besides activities related to your business.

If you don't meet clients or customers in your home office, you can still qualify for the home office deduction if your home office is your principal place of business. Your principal place of business is generally the location where you spend most of your working time and earn most of your business income. For example, a writer, bookkeeper, or web designer working out of their home would have their home office as their principal place of business.

To determine if your home office is your principal place of business, the IRS considers the relative importance of the activities performed at each place where you conduct business, and the amount of time spent at each place. Your home office can qualify as your principal place of business only if you meet the following IRS requirements:

• You use it exclusively and regularly for administrative or management activities of your trade or business. This means that the location at your home where you run your business is used exclusively and regularly for this purpose.
• You have no other fixed location where you conduct substantial administrative or management activities of your trade or business. However, you may perform some administrative or management activities outside your home (e.g., in your car), or someone else may perform administrative work for you outside your home (e.g., a bookkeeper).

If you are an employee, additional criteria must be met for your home office to qualify as your principal place of business. The home office must be used for the convenience of the employer, not the employee (not just "helpful"), and you must not rent any part of your home to your employer and use the rented portion to perform services as an employee for that employer.

If your home office qualifies as your principal place of business, you can deduct business mileage if you drive between your home and another work location in the same trade or business. However, if your home is not your regular workplace, driving between home and work is considered a commute and is not deductible.

Temporary work location

If you have a temporary work location, you may be able to deduct the mileage from your home to your workplace. The IRS defines a temporary work location as a place where you expect to work for less than a year. If you have a regular place of work and are commuting to a temporary work location, you can deduct the daily round-trip transportation between your home and the temporary location, regardless of the distance.

However, if your temporary work location is within the metropolitan area where you live, you must have an outside office or another regular workplace away from your home. In this case, you can only deduct your mileage when travelling from home to work assignments outside your metropolitan area.

Your metropolitan area typically extends no more than 35 to 40 miles from your home. If your temporary work location is beyond the general area of your regular workplace and you stay overnight, you are considered to be travelling away from home and may have deductible travel expenses.

Actual expenses method

The actual expenses method is one of two ways to claim a tax deduction for vehicle-related costs. The other method is the standard mileage rate method.

The actual expenses method requires you to calculate the total costs of owning and operating your vehicle for business purposes. This includes:

• Depreciation or rental and lease payments
• Parking fees and tolls
• Trailer rental costs (when hauling tools or instruments)
• Interest payments on your personal car loan
• Gas, oil, repairs, tires, and insurance

You then multiply these costs by the percentage of total miles driven that were for business purposes. For example, if half of your total miles were for business purposes, you can claim 50% of your vehicle's actual expenses for the year.

Tips for choosing the right method

The actual expenses method may be more financially beneficial for you, depending on your circumstances. The IRS states that this method may be preferable if:

• Your car is worth more than average
• Your car is more costly to operate and maintain than average

The actual expenses method also allows you to account for vehicle depreciation in your deduction.

However, the actual expenses method generally requires more work, as you have to keep a log of your mileage and retain receipts for all vehicle-related expenses.

Switching between methods

If you choose the actual expenses method in the first year of using your vehicle for business, you must continue using this method for all subsequent years that you use the same vehicle. If you choose the standard mileage rate method in the first year, you can switch between the two methods in later years.

Standard mileage rate method

The standard mileage rate method is one of two ways to calculate the cost of using your vehicle for business purposes. The other method is the actual expense method. The standard mileage rate method is a simpler way of calculating the deduction for the business use of your car. It does not require you to track individual purchases and save receipts. Instead, you simply keep track of your business and personal mileage for the tax year.

The standard mileage rate for 2023 is 65.5 cents per mile. This amount increases to 67 cents per mile for 2024. The standard mileage rate for business is based on a national average and uses straight-line depreciation.

To use the standard mileage rate method, you must own or lease the car(s) you drive for business. If you want to use the standard mileage rate, you must choose to do so in the first year of the car's operation in your business. In later years, you can switch to actual expenses. However, this method is not available if you:

• Claimed depreciation deductions on the car (other than the straight-line method)
• Claimed a section 179 deduction or the car's special depreciation allowance
• Simultaneously use five or more vehicles for your business (fleet operations)
• Are a rural mail carrier who receives a qualified reimbursement
• Claimed actual car expenses for a leased car after 1997

When you opt for the standard mileage rate method, you can deduct an amount per mile driven, along with tolls and parking fees incurred for business purposes. Commuting is generally non-deductible, but if your home office is your main business location, then trips from home to other business locations are deductible.

Mileage reimbursement rules

Self-employed/Business owners

If you are self-employed or a business owner, you can claim a tax deduction on all your business-related driving. There are two methods for calculating your mileage deduction: the standard mileage rate method and the actual expenses method.

Standard mileage rate method

The standard mileage rate method uses a set IRS rate per mile driven for business-related driving. For 2024, the standard mileage rate is 67 cents per mile. This method is more straightforward than working out actual expenses, as the rate covers all expenses of owning and running your vehicle for business purposes.

Actual expenses method

The actual expenses method allows you to claim deductions for expenses related to owning and operating a vehicle for business purposes. These expenses include depreciation or rental and lease payments, parking fees and tolls, trailer rental costs, and interest payments on your personal car loan.

Employees

If you are an employee, the rules are clear: you cannot deduct personal commuting expenses, including driving from your house to work. However, if your house is now your official office location, the drive between your home office and, say, a client can be deductible. It is important to review your state or municipality's local regulations, as mileage reimbursement rules may vary.

Record-keeping

Regardless of whether you are self-employed, a business owner, or an employee, it is important to keep timely and accurate records of your mileage. The IRS requires you to keep a log of each trip, including the vehicle's starting and ending mileage and any tolls or other trip-related costs. You can use a notebook, an Excel spreadsheet, or a mileage-tracking app to keep track of your mileage.

Frequently asked questions